Abstract

The interests of employees are not consistent with those of other stakeholders when firms are in financial distress. Hence, conflicts of interest among stakeholders are more severe, especially for those firms with strong union power, as news is reported in the media. However, little attention has been paid to the impacts of employees on bankruptcy resolutions. This study examines the impacts of employees (i.e., union power) on the conflicts of interest of distressed firms in the United States from 1983 to 2015. We find that union power has strong effects on conflicts of interest related to employees, such as asset sales, debtor-in-possession financing, successful emergence from bankruptcy, CEO replacement, and refiling for bankruptcy. On the contrary, for conflicts of interest unrelated to employees, including the costs of bankruptcy resolution, choice of bankruptcy resolution method, and conflicts of interest between creditors and debtors, we find no significant relationships. Finally, we also find a positive impact of union power on the probability of refiling for bankruptcy in the future after emerging successfully.

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